Fannie Mae 2011 Annual Report Download - page 341

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
amends, conditions, enjoins, stays or otherwise affects the appointment of the conservator or otherwise curtails
the conservator’s powers. Treasury may not terminate its funding commitment solely by reason of our being in
conservatorship, receivership or other insolvency proceeding, or due to our financial condition or any adverse
change in our financial condition.
Waivers and Amendments
The senior preferred stock purchase agreement provides that most provisions of the agreement may be waived or
amended by mutual written agreement of the parties. No waiver or amendment of the agreement, however, may
decrease Treasury’s aggregate funding commitment or add conditions to Treasury’s funding commitment if the
waiver or amendment would adversely affect in any material respect the holders of our debt securities or
guaranteed Fannie Mae MBS.
Third-party Enforcement Rights
If we default on payments with respect to our debt securities or guaranteed Fannie Mae MBS and Treasury fails
to perform its obligations under its funding commitment, and if we and/or the conservator are not diligently
pursuing remedies in respect of that failure, the holders of these debt securities or Fannie Mae MBS may file a
claim for relief in the United States Court of Federal Claims. The relief, if granted, would require Treasury to
fund to us the lesser of (1) the amount necessary to cure the payment defaults on our debt and Fannie Mae MBS
and (2) the lesser of (a) the deficiency amount and (b) the maximum amount available under the agreement less
the aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes
under those circumstances would be treated for all purposes as a draw under the senior preferred stock purchase
agreement that would increase the liquidation preference of the senior preferred stock.
16. Regulatory Capital Requirements
FHFA has announced that our existing statutory and FHFA-directed regulatory capital requirements will not be
binding during the conservatorship, and that FHFA will not issue quarterly capital classifications during the
conservatorship. We submit capital reports to FHFA during the conservatorship and FHFA monitors our capital
levels. FHFA has stated that it does not intend to report our critical capital, risk-based capital or subordinated
debt levels during the conservatorship. As of December 31, 2011 and 2010, we had a minimum capital deficiency
of $148.4 billion and $123.2 billion, respectively. Our minimum capital deficiency was determined based on
guidance from FHFA, in which FHFA (1) directed us, for loans backing Fannie Mae MBS held by third parties,
to continue reporting our minimum capital requirements based on 0.45% of the unpaid principal balance and
critical capital based on 0.25% of the unpaid principal balance, regardless of whether these loans have been
consolidated pursuant to accounting rules, and (2) issued a regulatory interpretation stating that our minimum
capital requirements are not automatically affected by the consolidation accounting guidance. Additionally, our
minimum capital deficiency excludes the funds provided to us by Treasury pursuant to the senior preferred stock
purchase agreement, as the senior preferred stock does not qualify as core capital due to its cumulative dividend
provisions.
Pursuant to the GSE Act, if the Director of FHFA makes a written determination that our total assets are less than
our total obligations (a net worth deficit) for a period of 60 days, FHFA is mandated by law to appoint a receiver
for Fannie Mae. Treasury’s funding commitment under the senior preferred stock purchase agreement is intended
to ensure that we avoid a net worth deficit, in order to avoid this mandatory trigger of receivership. In order to
avoid a net worth deficit, our conservator may request funds on our behalf from Treasury under the senior
preferred stock purchase agreement.
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